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Categories:Offshore,Pensions

New rules will 'cut throat' of New Zealand Qrops

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New Zealand Qrops provider Super Trustee Fund has written to the New Zealand government calling for it to scrap proposals which it claims could end the country’s Qrops market.

Last month, the NZ ministry for economic development published a draft Financial Markets Conduct Bill.

It contains clauses which would mean that only residents or those working for the state would be able to join New Zealand superannuation schemes and, by extension, any NZ Qrops.

Super Trustee Fund lawyer Michael Reason says the move is an attempt to stop people using NZ Qrops to cash out their pensions and avoid HM Revenue and Customs’ rules, which state that 70 per cent of funds in a Qrops must be used for retirement income.

Reason says preventing all non-residents from getting a pension in New Zealand is an extreme step. He says: “I have been told by several people that the Government is doing this to protect the country’s reputation over cashing out to avoid being blacklisted by the UK but it has taken the most extreme standpoint and, passed as it is, it will cut the throat of New Zealand’s Qrops market.”

Reason says the clause should be replaced with a requirement for members to “adhere to the existing requirement that the principle purpose of a scheme is saving for retirement”.

He says: “In New Zealand, you can take 40 per cent of your fund before retirement and putting a similar rule in writing in relation to Qrops would stop the cashing-out business in its tracks.”

Global Qrops director Paul Davies says: “The cashingout problem has been overblown. What these schemes have been doing for the country commercially has been good but that was not taken into account when these rules were put together.”

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Readers' comments (4)

  • I don't know about the NZ government, but I am sure that HMRC is keen to prevent some of the clear abuses of the QROPS rules.

    Hong Kong and Singapore have been stopped, and I am sure that NZ would have been on the radar if they did not take steps like these.

    In the 21st century HMRC has proved very adept at stopping avoidance, sometimes retrospectively. What they have not yet managed to do is regulate those selling QROPS outside the UK.

    Lest we forget, the R in QROPS stands for recognised, not regulated or registered!

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  • The cashing out problem has been overblown? Really? Many IFAs don't think it has been overblown at all as you only have to look at the ratio of QROPS going to New Zealand (the numbers were published last week) compared to the percentage of expats that are actually moving to New Zealand. Its funny how its only those moving to NZ who seem to think about doing a QROPS if everything stacks up properly.

    The whole situation was bound to blow up at some stage - cash out schemes have been keeping certain IFAs going for years now.

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  • Dear Mr Tolley.

    Whilst I agree with your stance on this article, please note that the Revenue do not "state that 70 per cent of funds in a Qrops must be used for retirement income".
    Whilst this is the rule for schemes in jurisdictions that only qualify as relevant QROPS jurisdictions by virtue of the fact that they must withhold 70% of funds to provide an income for life (The "equivalent jurisdiction test"), for other jurisdictions including Malta, Isle of Man and New Zealand there is no such requirement.
    If a jurisdiction is an EU member state (Malta) or it is a jurisdiction that has a double taxation agreement with the UK and a pensions regulator (Isle of Man, NZ) then there is no UK statutory override with regards to UK pension rules.
    Maltese pension laws offer flexible draw down rules and the IOM have its own 50c arrangement. Under these rules, neither scheme need to withhold 70% of pension funds.
    I would also add to earlier posts that HMRC did not close HK as a QROPS jurisdiction. It amended UK pension rules with regards to a UK resident drawing a pension from another jurisdiction and relying on the double taxation agreement in order to draw said pension at a favourable rate. UK residents could use the UK:HK treaty to draw income at HK income tax rates (c20%) rather than UK rates.
    Personally think it is a shame for the NZ regulator to impose such rules on all scheme in NZ. I think a more effective approach would have been to restrict these individuals who transfer into these schemes (more often than not, under “advice”) with every intension of ripping everything out in the following few years. Why not introduce formal pension rules? There under complaint schemes can still carry on accepting transfers and rogue schemes are forced to close or join the world of appropriate schemes.
    I’ll get off my soap box now.

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  • What is the current situation in relation to the proposed changes above?
    Have they been implemented or are they on the way to implantation??

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